Action Plan for Recovering from a Fraudulent Tax Return

Most people are aware of steps that can be taken to avoid identity theft and how to react when it has taken place in the financial world, but are you prepared to react when the IRS rejects your tax return, declines your refund, and begins sending matching notices your way?

In 2010, 15% of all identity theft cases reported pertained to tax returns, and by 2013 that figure had increased to 45%. The Internal Revenue Service (IRS) has stated that identity theft is a top priority and that it is taking “new steps and strong actions to protect taxpayers and help victims of identity theft and refund fraud.”

Smart privacy habits are the best ways to reduce your chances of fraudulent tax returns, but being aware of the steps to take following a breach of your personal information being used to steal a refund that rightfully belongs to you should be part of your arsenal as well.

Ways to Prevent Fraudulent Tax Returns

The number one way to prevent fraudulent tax returns filed on your behalf is to beat the thieves to the refund and file as soon as you have all of the information to accurately file your return. Early in the tax year fraudsters will attempt to file a return using a legitimate taxpayer’s identity and the sooner you file, the better your chances are at avoiding this chaos.

Some other basics the IRS recommends to avoid identity fraud:

Don’t carry your Social Security card or any document(s) with your SSN on it.

Don’t give a business your SSN just because they ask. Give it only when required.

Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.

If your tax records have not been affected by identity theft, but you have reasonable suspicion that you are at risk do to a stolen wallet or other events of this nature, contact the IRS Identity Protection Specialized Unit at 800-908-4490, ext. 245.

The Action Plan

Even with all the good measures taken above your tax identity could still be at risk. In recent years HR records have been a great source for hackers who are looking for identities to use. Generally a taxpayer is immediately informed of tax return identity theft if working with a tax professional who electronically submits tax returns to the IRS. The return is rejected with an error message that a return has already been filed under the Social Security Number listed.

There are a number of other ways you may discover a fraudulent return has been filed with your SSN, including notices that state:

More than one tax return for you was filed

You have a balance due, refund offset or have had collection actions taken against you for a year you did not file a tax return;

IRS records indicate you received more wages than you actually earned or

Your state or federal benefits were reduced or cancelled because the agency received information reporting an income change

Your first step is likely to call your CPA to have them help walk you through the process. You will need to report to the IRS that you are a victim of identity theft. The IRS has worked to keep up with the influx of identity theft cases, but typically takes 180 days to respond. If rejected electronically you should walk a paper copy of your return into a local IRS office to have the correct version processed in their system. By taking the return directly to an IRS agent, your issues can often be addressed in the same day. During this visit you should request that you be assigned an Identification Protection Pin number to you, which will be used in conjunction with your Social Security Number to file all returns going forward. To find your closest IRS location click here.

The IRS may request that you file an Identity Theft Affidavit to report you have reasonable suspicion that you may be a victim of Identity Theft or you are currently a victim of a more encompassing identity theft.

A fraudulent tax return filing doesn’t always coincide with other forms of financial identity theft. However if you find a fraudulent return filed under your identity, next steps should including checking with the three major credit bureaus to review your credit report. If needed you can file fraud alerts with these agencies and the Federal Trade Commission as well as your local police station. Keep records of your conversations and filings to help coordinate the process between various agencies.

If you have any questions regarding identity theft and what steps are needed to restore your good name to the IRS, please contact your BiggsKofford representative at (719) 579-9090, and we will be happy to serve you.